Global Macro Trends: Reserve Currencies, CBDCs, and the SDR

It's not your imagination. September so far has already delivered a measurable uptick in activity related to central bank digital currencies (CBDCs) and digital currency issues in general.


It's not the scale that matters here, it's the slope of the line.


Whether we are talking about CBDCs or the more general term "digital currency," activity levels are increasing materially.


All major G7 central banks have offered views on architecture and public policy issues related to CBDCs in the last four weeks. More interestingly, their views are largely in sync with each other even when technical details differ.


The International Monetary Fund (IMF), however, has remained on the sidelines. The silence is striking given that the IMF already manages a digital currency of sorts -- the Special Drawing Rights (SDRs).


Background on SDRs: SDRs are denominated as a composite basket of currencies. Until recently, the basket was composed of reserve currencies. The basket was updated in the last few years to add China's yuan.. IMF members own SDRs. They exchange those SDRs for underlying hard currencies within an internal market at the IMF using a fixed exchange rate published daily by the IMF based on the composite foreign exchange rates for the component currencies. But really, it is an electronic unit of account that is not accompanied by a physical currency issued or used in circulation in any economy.


Over the last few years, periodic debate has surfaced over whether (or not) the IMF should adopt distributed ledger technology (DLT) mechanisms to issue a digital SDR. Even more sporadic debate has attached to the question of whether such a digital SDR should be permitted to circulate freely. Even deployment in a private blockchain setting could create the possibility for digital SDRs to enter the open market beyond the IMF's internal market.


Today's Development: The Swedish central bank today entered the fray with an intriguing research paper. Footnote 8 offers the following intriguing observation:

The footnote itself has nothing to do with the sentence it supports. The relevant sentence reads:


"The values of the currencies in the basket are weighted to reflect their relative share of world trade and the global financial system and they are reviewed every five years.".


This suggests strongly that the editorial process inside the central bank was not keen to highlight the similarities and differences between the SDR and stablecoins.


Footnote 8 subtly acknowledges the point we made a few weeks ago.. The digital currency/CBDC policy initiatives reflect a deep competition with current reserve currencies. You can read that post by clicking on the image on the right.


For today, the main point is that we would not have found the research paper without our PolicyScope Platform.


Our morning Momentum Measurement picked up activity related to digital currencies. Within three clicks and less than 30 seconds, we were reading the research paper. And now we have a new data point concerning public policy trajectories regarding digital currencies.

This insight was discovered using the PolicyScope Platform.

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